Sales of new homes fall 7.6% to nine-month low

WASHINGTON (MarketWatch) -- Capping the worst year for housing since World War II, sales of new U.S. homes fell sharply in December for the second month in a row after a popular tax credit for buyers was set to expire, the Commerce Department estimated Wednesday.

New home sales fell to a seasonally adjusted annual rate of 342,000 in December after falling 9.3% in November to 370,000.

It was the lowest seasonally adjusted sales pace since March

For all of 2009, sales of new homes fall 8.6% to a record-low level of 374,000.

and just 4% above the all-time low of 329,000 reached last January.

"These figures probably still reflect some payback, following the initial round of buying stimulated by the home-buyer tax credit," wrote economists for Goldman Sachs. "However, the more fundamental issue is the overhang of unsold existing homes."

Sales had risen modestly since earlier in the year, boosted by low mortgage rates and an $8,000 tax credit for first-time buyers. The tax credit was scheduled to end on Nov. 30, a deadline that pulled sales forward.

In early November, Congress extended the tax credit until April and expanded it to repeat buyers. But the change in the law came too late to jump-start December sales.

Economists expect the expanded tax credit will stimulate home sales in the first few months of the year, but what happens to the market after that is anyone's guess. "Overall, the housing market recovery remains fragile," wrote Anna Piretti, an economist for BNP Paribas. "In particular, tight credit conditions, ongoing deleveraging, a likely increase in mortgage rates and a 10% unemployment rate all point to sluggish housing demand after the tax credit program expires in mid-2010."

"There is the risk that housing demand sputters in the spring," wrote Omair Sharif, an economist for RBS Securities. "But in our view, an improved economic picture with respect to both growth and the job market should be enough to offset these factors."

Realtors say more than 2 million people took advantage of the tax credit, although most of them likely would have purchased a home anyway, analysts say. The tax credit has boosted sales of existing homes much more than it has for new homes.

For all of 2009, sales of new homes fell 8.6% to a record-low level of 374,000, down about 23% from 2008's 485,000. The records date back to 1963.

Government statisticians have low confidence in the monthly report, which is subject to large revisions and large sampling and other statistical errors. In most months, the government isn't sure whether sales rose or fell. The standard error in December, for instance, was plus or minus 14.6%. Read the full government report.

The government says it can take up to five months to establish a statistically significant trend in sales. Over the past five months, sales have been on a 384,000 seasonally adjusted annual pace, down from 399,000 in the five months ending in November.

In December, sales of existing home sales fell nearly 17%, the National Association of Realtors reported Monday. Existing home sales are recorded when a sale closes, whereas sales of new homes are recorded when a sales contract is signed. See full story on the NAR report on existing home sales.

Home builders continued to slash their inventories of unsold homes. The number of unsold homes dropped 1.7% to 231,000, the lowest in 38 years. The number of homes for sale that are under construction fell to a record low.

At the December sales pace, it would take 8.1 months to sell the inventory, up from 7.6 months in November.

Builders have cut back on production of new homes, but still face stiff competition from unsold existing-homes as foreclosures continue to mount up.

If a home isn't sold before it's finished, it's taking a record 13.9 months to sell it after completion -- a reflection of the mismatch between the more-expensive homes in the inventory and the lower-priced homes that have been selling.

Very expensive homes did sell better in December, however, with the market share of homes costing more than $750,000 rising to 7% from 4% in November and 1% in August. Forty-three percent of sales were for less than $200,000 and 77% were for less than $300,000.

The median sales price of a new home sold in December was $221,300, down 3.6% compared with a year earlier.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.